[PPT] - Review of State Employee Total Compensation General Government / PowerPoint Presentation

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JLARC

Review of State Employee Total Compensation

General Government / Technology Sub-Committee, Senate Finance Committee December 3, 2008

Joint Legislative Audit and Review Commission

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JLARC 2

Study Background

 On November 13, 2006, the Commission authorized

JLARC staff to study compensation for employees of the Commonwealth

– Various bills referred to JLARC study by House

Appropriations Committee, House Rules Committee, and Members (2007 and 2008)

 Primary focus of study was salaries and benefits for

classified State employees

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JLARC 3

I n This Presentation

 Assessment of Total Compensation  Assessment of Major Total Compensation Elements  Total Compensation Options

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JLARC 4

Most Agencies Report Total Compensation Achieves Recruiting and Retention Purposes

 Statewide turnover rate in 2007 = 11.5%

– Similar to other governments – Lower than private sector

 81% agreed their total compensation attracts

qualified staff

– DOC and DMHMRSAS facilities tended to disagree

Total Compensation

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JLARC 5

Mercer Found Virginia’s Total Compensation Generally Competitive

Total Compensation = 96%

20 40 60 80 100 120 140% Salary Bonuses Medical Insurance Dental Insurance VRS Defined Benefit 457 Deferred Comp Retiree Medical

Total Benefits = 108% Total Cash = 88%

Percentage of Market Median Value

Total Compensation

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JLARC 6

Competitiveness Varies Considerably by the 43 Job Roles Mercer Benchmarked

13 23 7

# of Job Roles in Range

30.2 > 110% 53.5 90% - 110% 16.3% < 90%

% of Total Job Roles Benchmarked Range of Competitiveness (% of Market Median)

 Job roles with above-average turnover tend to

receive less competitive total compensation

Total Compensation

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JLARC 7

I n This Presentation

 Assessment of Total Compensation  Assessment of Major Total Compensation Elements  Total Compensation Options

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JLARC 8

Salary I s Not State’s Primary Recruiting and Retention Tool

 Only 9% of employees chose to work for and remain

with the State because of salary

 Only 36% of employees agreed their salary was an

attractive part of their compensation package

 Salary was most-cited reason why employees left

their job in FY 2008

Salary

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JLARC 9

Mercer Found Virginia’s Base Salaries Marginally Competitive

 Base salaries were, on average, 92% of the market

median

 Total cash compensation was, on average, 88% of

the market median

– Lower value of bonuses provided by State

Salary

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JLARC 10

Motivation Negatively I mpacted Due to Employee Dissatisfaction

 Nearly 11,000 employees report they are dissatisfied

because of salary issues

– Uncompetitive – Annual increases inadequate – Salary compression – Cannot afford basic living expenses

Salary

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JLARC 11

Health I nsurance Strong Recruitment and Retention Tool

 # 2 reason employees chose to work for and remain

with State (# 1 was job stability & security)

 96% of agencies agreed effective at recruiting

employees who have families

 80% of agencies agreed effective retention tool

Health Benefits

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JLARC 12

State Health I nsurance Compares Favorably to Other Large Employers

 Mercer ranked medical benefit portion of State health

insurance

– 4th compared to 16 large peer employers in VA – 2nd compared to 7 nearby states

 State contributes higher portion of premium than

most other employers

 Out-of-pocket costs, such as deductibles,

coinsurance, and copayments are similar or below median

Health Benefits

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JLARC 13

Health I nsurance Costs Are Growing Portion of State Spending

 Over past ten years has grown faster than total State

appropriations (135% vs 99%)

 Cost growth trends are not unique to State  Factors within State’s control driving costs

– State premium contributions – Fixed cost provisions of plan – Limited focus on efficiency and health data

Health Benefits

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JLARC 14

Retirement Benefits Retain Longer-Tenured Employees

 93% of agencies agreed  3/4 of employees within 5 yrs of retirement agreed  More important for longer tenured than for recently

hired employees (Mercer)

Retirement Benefits

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JLARC 15

PwC and Mercer Found VRS Benefits Competitive With Other VA Employers

 PwC ranked the VRS benefit 3rd compared to 7 other

large public & private employers in Virginia

 Mercer ranked VRS benefits 6th compared to 16 large

peer employers in Virginia

Retirement Benefits

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JLARC 16

Retiree Trends and I ncome

 Majority of retirees retired prior to normal retirement

age (unreduced benefit, 2000-07)

 VRS and Social Security benefits replace more than

80% of pre-retirement income

 Employees who choose to retire early face large

increase in health costs as % of income

Retirement Benefits

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JLARC 17

Retirement Funding and Costs

 Contributions to VRS plans lower than VRS Board

certified rate in 10 of last 18 years

– Virginia ranked 46th out of 50 states in average amount

f contribution paid (Pew Center for the States)

 PwC: State’s payment of employee contribution to

VRS benefits is unique and costly

 PwC: COLA protects retirees’ purchasing power but is

cost driver for State

Retirement Benefits

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JLARC 18

Leave Benefits Effective Recruitment and Retention Tool

 72% of agencies agreed

– for single employees or with few yrs of service

 86% agreed

– for employees with families or more yrs of service

Leave Benefits

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JLARC 19

Leave Benefits Comparable to Other Large Employers

 Mercer ranked State’s total leave

– 9th compared to 16 large peer employers in VA – 3rd compared to 7 nearby states

 Slightly more holidays, but less sick leave  12th out of 14 for annual leave

Leave Benefits

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JLARC 20

Leave Benefits a Concern in 24/ 7 Facilities

 Over 1/3 of DOC and about 1/2 of DMHMRSAS

facilities agreed leave reduces agency productivity

 DMHMRSAS and DOC employees least satisfied with

work / life balance

– Especially employees working evening, night, or

rotating shifts

Leave Benefits

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JLARC 21

Finding

Low $3,301

◐ ◐ ◐

Salary

Future $ Risk Level Current $ (millions) Work / Life Balance Retire Health & Productivity Motivation & Morale Retain Recruit

High $677

◐

Health

Insurance

N/A [blank] Minimally

○

Partially

◐

Mostly

Scale of Purposes Achieved

Cost Purposes Med $487

Retirement

Benefits Low $24

◐ ◐ ◐

Leave

Benefits

Summary Assessment

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JLARC 22

I n This Presentation

 Assessment of Total Compensation  Assessment of Major Total Compensation Elements  Total Compensation Options

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JLARC 23 JLARC Staff

Surveys
Interviews
Cost analysis
Trends, best practices
Assessment /

recommendations

Other employer

benchmarking

JLARC Staff Used I nformation-Driven Process and Criteria to I dentify 12 Potential Options

-Criteria--
Purposes
Cost / Risk

12 Potential Options

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JLARC 24

Option 1 Better Achieves Purposes and Reduces Future Cost and $ Risk

Cost Purposes

Higher

+ $89

↔ ↑ ↑

Mod. Pay for

Purpose (S1)

Future $ Risk Level Projected $ Yr 5 (millions) Work / Life Balance Retire Health & Productivity Motivation & Morale Retain Recruit

Lower

$46

↔ ↔ ↔

Mod. health

changes (H1)

N/A [blank] Harmful

↓

Minimal

↔

Beneficial

↑

Impact on Purposes

Lower

$91

↔ ↔ ↔

Employee VRS contribution(R1)

Lower

$55

↔ ↔ ↔

Reduced COLA (R2)

Lower

↔

↔ ↔

New hire ret. age 60 (R3)

Lower

+ $21

↔ ↑ ↑ ↔ ↔

Exchange leave for cash (L1.b)

$82 million

Projected Total $ I mpact in Year 5 TOTAL COMPENSATION OPTION 1

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JLARC 25

Option 2 I ncludes Different Retirement Structure (New Hires / Non-Vested)

Cost Purposes

Higher

+ $90

↔ ↑ ↑

Mod. Pay for

Purpose (S1)

Future $ Risk Level Projected $ Yr 5 (millions) Work / Life Balance Retire Health & Productivity Motivation & Morale Retain Recruit

Lower

$46

↔ ↔ ↔

Mod. health

changes (H1)

N/A [blank] Harmful

↓

Minimal

↔

Beneficial

↑

Impact on Purposes

Lower

$66

↔ ↔ ↔

Create new combination plan (R5)

Lower

↔

↔ ↔

New hire IPT (R4)

Lower

+ $21

↔ ↑ ↑ ↔ ↔

Exchange leave for cash (L1.b)

$1 million

Projected Total $ I mpact in Year 5 TOTAL COMPENSATION OPTION 2

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JLARC 26